Air France-KLM Confirms Order For 25 A350-900s, Inks Engine MOU With Rolls-Royce

6/19/2013 10:39 AM ET

Franco-Dutch airline Air France-KLM (AFRAF, AFLYY) has Wednesday finalized an order for 25 next-generation A350-900 wide-bodied aircraft from Airbus, the aircraft manufacturing subsidiary of European Aeronautic Defence and Space Co. or EADS NV (EADSY, EADSF). The deal, which was announced at the Paris Air Show, is valued at about $7.2 billion at list prices.

The order also includes options for a further 25 A350-900 aircraft. Air France will receive the first aircraft in 2018. The airline is currently in the process of renewing and modernizing its 200 to 350-seat long-haul aircraft fleet.

As part of the fleet modernization, Air France-KLM's earlier finalized an order for 25 B787-9 Dreamliners from Airbus rival Boeing Co. (BA) in September 2012, with another 25 on option. These planes will enter service in 2016.

"With the A350, Air France-KLM will continue to operate one of the most modern fleets in the world, and ensure the growth of its long-haul activity, while achieving significant cost savings," Air France-KLM Chairman and CEO elect Alexandre de Juniac said.

The deal was first mooted in 2011, but could not be finalized due to issues over engine choice. Air France normally uses engines manufactured by General Electric Co. (GE) for all their previous aircraft, but it now will have to deal with GE rival Rolls-Royce Holdings Plc (RR.L, RYCEY.PK) as the A350-900 is exclusively powered by its Trent XWB engines.

The A350-900 is the world's most efficient large twin-engined commercial aircraft, with a capacity of 270 to 350 passengers in three-class layouts. It is expected to use 25 percent less fuel and provide an equivalent reduction in carbon dioxide emissions. The plane has so far won 613 firm orders from 33 customers worldwide, as of the end of May.

The A350-900 aircraft conducted its maiden flight four days ago on June 14, and is due to enter service in 2014. Air France-KLM said the aircraft introduces major environmental advances and will contribute to its ambitious targets for noise and carbon reduction.

The Air France-KLM Group currently operates a fleet of just over 190 Airbus aircraft, comprising eight A380s, 31 A330s, 13 A340s, 25 A321s, 54 A320s, 41 A319s and 18 A318s. The airline now joins an exclusive group who are customers for every member of the Airbus product family.

Just prior to finalizing the aircraft order, Air France signed a memorandum of understanding with Rolls-Royce for the Trent XWB engines to power the 25 A350-900s, including an engine maintenance support agreement with Air France Industries KLM Engineering & Maintenance. The engine agreement is worth $1.1 billion at current list prices. Air France-KLM also has options for covering 25 more A350-900 aircraft.

Eric Schulz, President of Civil Large Engines at Rolls-Royce said, "We look forward to forging a strong relationship with Air France-KLM group and we're delighted that for the first time their fleet will soon include aircraft powered by a member of our Trent family of engines. This is a great opportunity for us to demonstrate to Air France-KLM the exceptional product efficiency and superior service support benefits that Rolls-Royce Trent customers enjoy."

In Wednesday's regular trading session, EADSY is currently trading at $57.00, down $0.90 or 1.55% on a volume of 3,550 shares. Air France-KLM is trading in Paris at 7.21 euros, up 0.07 euros or 0.85% on a volume of 1.61 million shares.

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